5 Tips For Boosting Your Credit Score To Drive Your Dream Electric Car
5 Tips For Boosting Your Credit Score To Drive Your Dream Electric Car
by
December 23, 2022
S&P Global Mobility forecasts electric vehicle sales in the United States could reach 40% of total passenger car sales by 2030. While it’s unclear whether the shift toward electric vehicles is “fueled” by increasing climate concerns, tax breaks, or mere personal preferences and convenience, one thing’s for sure — more and more people are considering switching from traditional gas-powered vehicles.
While this is great news for electric vehicle brands and, of course, the environment, financing an electric car can be a challenge if you don't have a good credit score. That’s right — regardless of whether you’re buying a gas-powered SUV or your dream electric car, your credit score plays a critical role in determining your eligibility for financing.
If your credit rating is less than excellent, though, we’ve got five expert tips for how to boost your credit for an electric car loan. By following these tips, you can improve your chances of securing the financing you need to hit the road in an eco-friendly fashion.
Electric Car Financing: Why Your Credit Score Matters
If you’re wondering how to get approved for a car loan, the answer starts with understanding the importance of a great credit score when applying for a car loan.
A good credit score will not only help you qualify for car loans with lower interest rates, but it can also save you thousands of dollars in interest payments over the life of the loan (more on that math below).
That’s because your credit score can affect your ability to access electric car financing and the terms of your loan agreement. Simply put, the higher your credit score, the better financing options you can get.
What is a good APR for a car? According to Car & Driver, the average APR for a car loan is just over 4% for new cars and 8.62% for used cars. However, as mentioned, your car loan APR will depend on your credit score. Here’s their breakdown of average APRs by credit score:
As you can see, securing electric car financing with a good credit score isn't just a vanity achievement — it's also a smart way to save money on your dream car.
For example, let’s say you want to finance a used electric car and have a “fair” credit score rating of 670. The car's value is $25,000, and you’re putting down a $5,000 down payment. Throughout a five-year loan, with a 10.33% interest rate, you’d pay $25,691 (plus the $5,000 initial down payment, for $30,691).
Now, let’s say you work hard to boost your credit score to 760, which puts you in the “excellent” category. Assuming everything is the same, including your initial down payment, you’d pay a total of $21,926 (plus the $5,000 initial down payment, for a total of $26,926).
In this scenario, a simple boost in your credit rating could save you nearly $5,000!
How to Understand Your Credit Score
Let’s take a step back from the mathematics of credit scores for a second and get back to the basics. After all, you can’t learn how to finance a car if you don’t know the basics of credit scores.
Your credit score represents your creditworthiness and your ability to repay debts. It's determined by several factors, including:
- Payment history
- Credit utilization
- Length of credit history
- Types of credit
However, it's important to note that lenders often consider factors besides your credit score when deciding whether to loan you money, such as your income, employment history, and debt-to-income ratio.
How to Check Your Credit Score
Checking your credit score is an essential first step in boosting your credit score to drive your dream electric car. You can check it for free once annually with each credit bureau (Experian, TransUnion, and Equifax). You can also monitor your credit score via your credit card app.
However, tools like Cheers make it easier to access your score, monitor it, and improve it. Cheers provides additional benefits, such as customized tips and expert recommendations to help you increase your creditworthiness.
What Is a Good Credit Score for a Car Loan?
The answer depends on the lender, but a score of 680 or above typically ensures a low interest rate. Review the table above and the real-world example provided to understand how a higher credit score can help you access better car interest loan rates.
Top 5 Tips for Raising Your Credit Quickly
Ready to learn how to get a car loan with the best interest rates and terms? Follow these electric car loan approval tips.
(Also — remember to stay on top of your finances, make responsible decisions, and avoid unnecessary credit inquiries. With a little time and effort, you can drive away in your dream EV with a great credit score to boot.)
1. Lower Your Credit Utilization Ratio
Your credit utilization ratio is the amount of credit you’re using compared to the total amount of credit available.
A high credit utilization ratio can negatively impact your credit score, so try to keep it below 30%. This means that if your credit limit is $10,000, you should only use around $3,000.
The easiest way to lower your credit utilization ratio is to pay down your credit card balances. Another way to lower your credit utilization ratio is to…
2. Make Multiple Payments
Lenders report your credit utilization ratio to credit bureaus once a month, so making small payments regularly can prevent your credit utilization ratio from reaching a high point (which is typically, as mentioned, over 30%) before your next statement.
3. Avoid Hard Credit Pulls
Avoid applying for multiple credit cards or loans simultaneously, as each application can result in a hard credit pull. Instead, research and choose the most suitable loan or credit card before you apply.
While hard credit pulls don’t impact your score as much as other factors, it’s a small, simple way to achieve credit improvement.
4. Ask For a Higher Credit Limit
Asking for a higher credit limit can improve your credit utilization ratio as your total available credit increases. However, it’s important to use this option responsibly! If you tend to overspend and have a hard time budgeting, a higher credit limit can also lead to more debt.
5. Pay On Time
Finally, ensure you’re paying your bills on time. Have trouble remembering what to pay and when? Set up automatic payments or reminders on your phone to ensure you never miss a payment.
If you're struggling to pay your bills on time due to financial strains, contact the credit card company or other creditors to see if they can work out a payment plan. If you present your case and have evidence to back up your situation, they’re usually willing to work something out.
Electric Car Financing & Credit Scores: Our Final Word
The bottom line? Your credit score isn't just a number; it's the key to unlocking your dream electric car.
With a high credit score, you can secure favorable loans, low interest rates, and flexible terms that make it easier to finance an electric car. On the other hand, a low credit score could lead to higher interest rates, fewer loan options, and more barriers to owning your dream vehicle.
So, if you're serious about driving an electric car, take the time to work on your credit score. With the five tips above, you can quickly boost your credit score and get one step closer to owning your dream electric car.
If you need more help improving your credit and are having trouble getting a car loan with the tips above alone, we suggest you…
Build Your Credit With Cheers
If you have a low credit score, you don’t have to let it stand between you and your dream electric car. Take proactive steps towards improving your credit today with Cheers Credit Builder, a simple and effective solution for building your credit while saving money and creating an emergency fund.
With no hidden fees and flexible repayment plans, you can choose from loan amounts of $500, $1,000, or $2,000 with repayment terms of either 12 or 24 months.
Ready to activate your credit score? Click here to start building your credit and driving towards your dream car today with Cheers Credit Builder.
